Friday, July 3, 2009

Burmese elite enjoy times of plenty

By Amy Kazmin

(FT) -It’s nearly midnight on Saturday and the dance floor of DJ’s Bar in Rangoon is packed with Burmese youth, grooving to throbbing house music as red, green and yellow light beams flash and slice across the room.

The revellers – young men with hair gelled into modish styles and young women wearing mini-skirts and clutching mobile phones – have each paid a $10 cover charge to enter, a steep price in a land where university lecturers earn just $80 (£50, €57) a month.

Yet the hefty charges are no barrier for these affluent, well connected members of an emergent Burmese elite with money to burn.

“People are spending money – and it’s not just a half a dozen of the regime cronies,” says one foreign diplomat in Rangoon.

Burma’s resource-rich economy, a treasure trove of natural gas, precious gems and valuable hardwood, has long been squeezed by the twin pressures of western sanctions and a military junta with a weak grasp of economics and little faith in civilian technocrats.

That no-win combination has left most of Burma’s 52m people struggling to get by, with their frustration boiling over into mass protests in 2007.

Yet amid the widespread hardship, Rangoon, the dilapidated former colonial capital, is acquiring a veneer of wealth, as a privileged elite enjoys unprecedented times of plenty, two decades after the military abandoned its autarkic “Burmese way to socialism”.

Today, Burmese with the right military connections are profiting from access to natural resources, government construction contracts and privileges including the right to engage in international trade, still tightly controlled by the regime.

In the commodity boom, Burma’s agricultural exports soared to $2bn, up from $300m a few years earlier, doing little for farmers, but enriching urban traders. “There is economic activity going on,” the foreign diplomat said. “The vast majority of trade is with Burma’s immediate neighbours, and there is a lot of investment and a lot of exports.”

Growth in tourism and other forms of commerce has created a small cadre of professionals. “More people are getting management roles and seeing salaries rise,” said the diplomat.

Meanwhile, signs of affluence are everywhere. Stylish-looking new condominiums are sprouting near the city’s lakes, and prime real estate prices have tripled over the past five years. Colonial-era wooden bungalows are being replaced by ostentatious mansions with Greco-Roman columns.

Young men drive souped-up Jeeps painted lemon yellow or ultra-violet while their elders display their wealth in expensive imported Land Cruisers and Pajeros. Swanky boutiques proliferate, with names such as the Sky Princess beauty salon, We and We interior design, and She Shines jewellery.

Yet some savvy Burmese business people say Rangoon’s spurt of highly conspicuous consumption reflects the economy’s deep malaise – including its dysfunctional banking system and rampant inflation – rather than its fundamental health.

Although Burma has about a dozen private banks, they are hampered by regime rules that cap their deposit-taking at just 10 per cent of their paid-in capital, preventing them from channelling surplus household cash into productive investment. According to the IMF, the ratio of bank deposits, and credit to the private sector, to gross domestic product has fallen sharply over the past eight years.

With inflation running at about 30 per cent, many Burmese are pouring their surplus cash into hard assets that they feel will at least hold their value – if not appreciate. “You can’t put it in the bank so you put your money in cars or a nice new house to keep the value of the money,” said one business person.

But Burma’s asset bubble may be about to burst. Many of the Rangoon condos have been developed by companies that received prime urban land as part of their payment for helping to build the junta’s new capital city far to the north and its $3.5bn new airport. Many of the units are unsold, leaving the companies struggling to recover costs.

Senior General Than Shwe, the junta’s head, has apparently ordered the government to balance its budget, which has been in deficit for years, ahead of the regime’s planned elections next year, which could create a squeeze on liquidity and bring the spending spree to a halt.

“No one is getting any more money,” said one economist. “Businessmen are also quite fed up. They want change.”

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